Ulterior motives driving the national minimum wage

2015-03-29 15:00

7m - The number of people, according to Stats SA, who earn less than Cosatu’s proposed R4?500-a-month minimum wage.

25% - The estimated unemployment rate in SA, according to Stats SA. Comparatively, Brazil’s unemployment rate is 5%.

The national minimum wage looks to be inevitable now. At a summit of the labour, business and government council Nedlac last year, Deputy President Cyril Ramaphosa indicated it was not a question of “if” but “when” and “how” the minimum wage would be implemented.

Zwelinzima Vavi, of labour federation Cosatu, has been the most outspoken in arguing for a minimum wage. Citing Stats SA data, Vavi claims 60% of formal-sector workers earn less than R3?000 a month and 16% live on less than R500 a month.

The director-general of the department of labour, Thembinkosi Mkalipi, says: “If businesses say ‘no’ to a national minimum wage, it will be better for them to open their businesses elsewhere.”

It is interesting to note the examples used by those who favour minimum wages. The first – a fallacy – is an argument by appeal to anecdote, namely that we can pluck the only example out of 196 countries in the world – Brazil – and display this as the model to follow.

Brazil increased real wages by 81% between 2003 and 2010 with no apparent consequences for employment. But Brazil and South Africa have vastly different histories, cultures, political systems and economic relations – to such an extent that we may as well be getting our policies from the moon.

Though Brazil has a lower unemployment rate than South Africa (5% vs 25%), its rate is driven by contractions in the labour force, ie fewer people looking for work.

It is not an accident that South Africa and Brazil have similarly low levels of labour market participation (55% vs 57%). Yet the extreme case of the Brazilian anecdote has been given the status of legend.

Second – also a fallacy – is the argument by appeal to positive and legitimate goals such as prosperity, decent work and economic growth.

This tactic is used by those in favour of minimum wages to lend the appearance of virtue to their goals while disguising their destructive methods.

Cosatu’s minimum wage proposals will do no more than exclude competition from young black jobseekers to better entrench older, unionised workers.

Lessons from the other Brics countries (Russia, India and China), indicate conclusively that economic liberalisation delivers growth more or less immediately, and employment a bit more slowly.

We should look at these counterexamples as economies that have liberalised their labour markets to promote employment.

We don’t need to look too far: South Africa in the 20th century was a good example of how a relatively poor (white) people pulled themselves out of poverty into the middle class and, most recently, the upper middle class. In the 21st century, the black middle class is doing roughly the same, except much faster.

Liberal democracies have strong institutions of freedom (of speech, religion and movement), strong traditions and cultures that limit the role of the state in economic affairs, excellent educational and career prospects based on merit, high-functioning state institutions of criminal justice and constitutional rights – and much more.

The central freedom is the economic freedom to transact, save, own and acquire assets – which is why this freedom is most aggressively attacked, since some piecemeal economic freedoms have led to widespread frustrations around the lack of democratic reforms and growing civil unrest (as we’ve seen in India and China).

The Brazilian case must be dismissed as an isolated anecdote, the only case Cosatu can find for the relationships it desires. But it cannot be extrapolated willy-nilly locally. Cosatu’s appeals to respectable goals of employment and economic growth are a ruse to disguise its ulterior motives and destructive methods.

It may seem like a good idea to introduce a R4?500-a-month minimum wage for people earning less than that – but what if there are ways to conduct business without such workers, as in agriculture and mining, where 2.4 million jobs have been lost since 1994?

Cosatu’s agenda remains to keep black kids poor, by providing them with incompetent unionised teachers and excluding them through “job-reservation” tactics that limit them from getting their first jobs – on which young people’s entire careers and prosperity depend.

The emergence of low-fee private schools is significant. These are small-scale schools run by “edupreneurs” who employ retired teachers and pay them a good wage based on their performance in teaching 30-pupil classrooms at a cost of R350 per pupil per month. Through competition and reputation building, these low-fee private schools are consolidating and growing.

Government has recognised the intransigence of the SA Democratic Teachers’ Union and, for this reason, provincial departments of basic education issue licences for almost any low-fee private school that applies.

There is only one known solution to poverty: the twin goods of economic growth and employment.

Employment in South Africa seems to grow strongly when economic growth rises above 4% per annum – so that must be our objective.

There is a lot to be done to promote economic growth of more than 4%, including abolishing the Unemployment Insurance Fund, [Workmen’s] Compensation Fund, Road Accident Fund, and more. It is interesting that the ANC conveniently retained all the disgraceful relics of the apartheid-era police state to promote its agenda of national socialism under the guise of the “national democratic revolution”.

Cosatu is a spent force experiencing a crisis of relevance. It is disintegrating under the natural calculus of economic progress. Since 1994, the influx of foreign capital has promoted the economy’s modernisation from a primary agricultural and mining economy into a tertiary-services one.

There are now 3?million blue-collar workers (and shrinking) and 9?million white-collar workers (and growing); 41% of the workforce is employed in retail and finance alone. Agricultural employment has fallen from 2.2?million in 1994 to 660?000 at present.

Mining employment has fallen from 1.4?million to 550?000 over the same period. Manufacturing employment has been roughly static.

Based on Stats SA’s figures, about 7?million people earn less than Cosatu’s proposed R4?500-a-month wage. The minimum wage will simply promote unlawful activity, which, after all, is an enterprise like any other.

It is amazing how entrepreneurial the private sector has been in evading labour laws – and surprising how the department of labour has undermined Cosatu’s ideas, such as the banning of labour brokers and opposing the youth wage subsidy. There is every reason to believe the minimum wage will go the same way.

It is worthwhile attacking Cosatu’s modus operandi. But the federation is drowning in infighting and power struggles. Bargaining councils are subject to extensive litigation. It is not clear-cut that Cosatu or the minimum wage should be issues of concern.

- Sharp is an economist at the Free Market Foundation

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